# Thread: Required Reserve Ratio and MPC questions

1. ## Required Reserve Ratio and MPC questions

RRR is 5%. Loans are deposited in checking accounts. If the Fed sells $1000 of US bonds to a commercial bank. What can we expect to happen? The money supply will FALL: A) by$20,000
B) by $1,000 Money supply will INCREASE: C) by$20,000
D) by \$1,000

OR:
E) The money supply will be unchanged

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An economy in which MPC is .95 and RRR is 10%. If imports increase by 15, what is he change in real GDP?

A) -300
B) -150
C) 300
D) Impossible to determine with provided information

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So, I think the answer to #1 is E, and #2 is D.

If I could get any help it would be much appreciated, just trying to understand all of this. Thank you very much for your time!

2. ## Re: Required Reserve Ratio and MPC questions

Ok, so I overlooked the first problem! It should be A, because it's 1/.05 = 20(first time around I was doing .5 or 50% ). Then 20 * 1000 = 20,000 and finally it falls, because the Fed is selling bonds. Any help with the other would be appreciated!